The Population Irony
In 2013 I published my first book about the global pension crisis. Pensions involve demographics and the demographics of China at the time were screaming that the thirty plus year old one-child policy of China was becoming an economic and pension issue for China. The fundamental issue is that economic growth cannot be had without population growth. It is an economic credo that is hard to avoid. And China had implemented what is generally considered the most effective public policy the world has ever seen. It’s one child policy was, indeed changing the culture of China and driving its population growth down and down. But wait…What seemed in the 1970’s as the biggest problem faced by mankind and certainly by the highly populated countries like China and India was explosive population growth. Availability of contraceptives was becoming ubiquitous, but the cultural imperative of having children was deeply rooted in the culture of the people and this was less about abstinence and more about the deeply held belief that having more children was better than having less. There was the history of infant mortality, which was gradually declining, but lingered in memory. There was the rural economy, which often suggested that more hands on the land were better than fewer. But there was also the unspoken understanding that children would take care of their aged parents in retirement and that nuclear family component was central to how people thought about their lifespans. But the centralized and autocratic government of China thought they knew better and decided that part of modernizing China was to acknowledge the reduction on infant mortality, push for further urbanization and moving people off the land and into the factories, and the provisioning of a pension system which would supplant the old ways of aging in China. But they lost sight of the core economic principle of growth.
At the time, China was ramping up to a normalized 10% growth rate (some years even greater). Doing the simple compounding math on that, the fifty year run of the country has grown the economy by over 100X, which is mind-boggling. We have grown to expect that China’s trajectory is such that it will overtake the U.S. to become the world’s dominant economy. But, as I love to say, trees don’t grow to the sky and China’s growth has suddenly gotten derailed. It has not been derailed by an economic phenomenon, a war or a competitive response. It has been derailed by demographics.
When I published my book in 2013, the only language the publishers translated it into was Mandarin Chinese. The demand for the book there was quite brisk. Specifically, I laid out the reality that by 2050 China’s economy and aging population would become top-heavy and that it would create a massive retirement crisis. The population and economic growth math was very obvious, but the subtle cultural barriers were there as well. I kept hearing about it from my Chinese students. The country’s emphasis on commercial growth had relegated the implementation of pension regulation into the nice-to-have rather than the need-to-have category and the government did not seem to care much about enforcing their own retirement savings protocols. Growth was slowing and I have this image of the ship captain standing on the bridge in Beijing screaming into the tube, “More steam!” All to no avail, since the Chinese ship of state is a Leviathon that makes the Bismarck look like a toy boat. It does not turn on a dime and the effectiveness of the one-child policy had permeated into the Chinese culture in ways that would be hard to extract with another dictum.
In 2016, the central machinery of China saw fit to lift the one-child policy, at first gradually and eventually taking it all the way to its present state of a three-child policy. I think its funny that they didn’t feel simply removing the ban was sufficient, but the autocratic imperative was to mandate a number of children to its people. Funny thing is that you can much more easily police a restraint on births than you can a rejuvenation of higher levels of procreation. Chinese people saw how much more prosperous they were with fewer children. They didn’t really try to figure out how much of that was global economic growth, the opening up of the Chinese economy or the urbanization of China. What they saw every day was that with one child, they all lived better. And that was that. There was also one other collateral issue, which had to do with the fact that what is probably a built-in bias for male descendants became a serious and probably tyrannical trend to promote and support male child births and dispossess female birthright. China now not only has fewer young people, but many fewer female young people. That too does not bode well for the demographics of the country. Such is the problem with on-high manipulation of the citizenry.
There is a concept in pension demographics called the old age dependency ratio and it is pretty much exactly what it sounds like. As the demographics of a country shift with greater longevity caused by better nutrition and medical care combined with lower birth rates caused by either policy (like China) or cultural and biological shifts (like we are see all across the western world), the ratio of younger, actively working people to older, less productive and more dependent people, is a critical economic determinant of growth. It does not take a genius to understand that having an older population makes growth more difficult. China’s demographic shifts have combined to create the world’s largest and oldest population, challenging long-time leader, Japan, in this not-so-enviable leadership position. Older populations sag under their own weight and now China is starting to sag. When they announced this week that they had negative population growth for the first time in six decades, they also announced that growth was pinned at 3%, well below the 5.5% they are targeting now. While I’m sure that some will suggest that the COVID restrictions were to blame for the slowdown of growth, most economists would agree now that COVID played a relatively minor role in either declaration and that demographic trends were the real culprit. COVID problems can be fixed more easily than longer term demographic trends.
Now I get to my favorite part of the economic and population irony. The solution for slow growth due to an aging population and reduced fertility is quite simple, it is a more liberal and open immigration policy. Germany and the EU in general seem to understand this and have opened their borders more to the wave of immigrants, not without some difficulties, but with an eye to the future of their youth in a world that may be otherwise starved for growth. Japan, which has an even greater old age dependency problem and has historically imbedded and strong xenophobic tendencies has not done so and will face the demographic beast sooner than most countries. As an island nation, I would argue that they are primed down the road (no time soon, but perhaps way down the road) for eventual dominance by China. The U.S. has always had the advantage of distance and isolation from the powers of Europe and the powers of Asia and it has the added advantage of a heritage built on immigration and a regular recent flow from south to north. I have often said that this is the hidden strength of our country and it is amazing to me when people on the right don’t see that. In addition to the obvious benefits of diversity and ambition that immigrants bring to this country, we are now seeing quite clearly in the example of China that immigration is also the secret weapon for growth. We need the population growth and to get it without the concomitant addition to the world’s 8 billion souls is the best imaginable solution. So, I would argue very loudly that immigration is our economic salvation and the braintrust of the right had better start to wake up to that reality or risk leaving their grandchildren in the rut of a no-growth world.